Sovereign insurance to incentivize the shift from disaster response to adaptation to climate change – African Risk Capacity's Extreme Climate Facility

Abstract

In order to meet the costs of adaptation, additional funds will be required, including private finance. Sovereign insurance is currently used as a contingency for disaster response but, as yet, has not been harnessed to finance a shift to longer term adaptation. In addition to its existing disaster contingency products, African Risk Capacity has designed a new sovereign insurance product – the Extreme Climate Facility – that intends to complement existing bilateral, multilateral and private sources of finance that enable proactive adaptation by leveraging private sector funds through the market. In this viewpoint, we argue that the Extreme Climate Facility contributes to the adaptation financing gap while also being innovative in incentivizing disaster risk reduction and adaptation interventions.